ERISA Violation Penalties Increase

ERISA Violation Penalties Increase

October 20, 2016

As an advisor to tax-qualified retirement plans, you understand how much time and energy your clients put into making sure their retirement plans comply with the Employee Retirement Income Security Act of 1974, or ERISA. Now you have another reason to be sure your clients are making compliance a priority; the cost of violations is skyrocketing. Non-compliance penalties are going up, and in some cases are more than doubling.

New Legislation Requires Penalty Adjustments

As part of the Bipartisan Budget Act of 2015, congress passed the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. The new law basically tells federal agencies to adjust their civil monetary penalties each year based on inflation and subject to a specific amount or maximum amount set by Federal law.

One of the agencies impacted by the new law is the Employee Benefit Security Administration, who oversees ERISA.

ERISA Penalties Increasing

Fifteen separate penalties have been increased for ERISA. Here are some of them, including the dollar amounts:

  • Section 209(b): Failure to furnish reports to certain former participants and beneficiaries or maintain records; $11 to $28
  • Section 502 (c)(2) – Per day for failure/refusal to properly file plan’s annual report; $1,100 to $2,063
  • Section 502 (c)(4) – Per day for failure to disclose certain documents upon request under ERISA 101(k) and (l); failure to furnish notices under 101(j) and 514(e)(3) - each statutory recipient a separate violation; $1,000 to $1,632
  • Section 502 (c)(5) – Per day for each failure to file annual report for Multiple Employer Welfare Arrangements (MEWAs); $1,100 to $1,502
  • Section 502 (c)(7) – Per day for each failure to provide notices of blackout periods and of right to divest employer securities-- each statutory recipient a separate violation; $100 to $131
  • Section 502(c)(10) minimum penalty for uncorrected de minimis violations; $2,500 to $2,745
  • Section 502(c)(10) – minimum penalty for uncorrected violations that are not de minimis; $15,000 to $16,473
  • Section 502(c)(10) - unintentional failure maximum cap; $500,000 to $549,095
  • Section 502 (m) – Failure of fiduciary to make a proper distribution from a defined benefit plan under section 206(e) of ERISA; $10,000 to $15,909

The new law only applies to civil penalties, not criminal penalties. However, other penalties outside of ERISA  that are increased through the new law could affect employee benefit plans, such as HIPAA, COBRA, and the Affordable Care Act.

Important Dates

These new amounts only apply to penalties assessed after August 1, 2016, for violations that took place after the new law was enacted on November 2, 2015. In the future, all agencies will have to adjust their penalties for inflation by January 15 of each year.

What Advisors Can Do

It’s important to be sure your clients are educated on the changes and prepare well in advance of the deadlines. First of all, you should make sure they are indeed aware of the increases and are doing regular reviews of their plan’s compliance. Second, there are several things that you should walk them through immediately in light of these changes:

Establish A Compliance Program

The most important thing for a plan sponsor to do is to establish a compliance program if they don’t already have one. They need a program in place to monitor compliance with ERISA and other employee benefit laws.

Report Violations

If your client has violations, it is much better for them to bring them to light instead of waiting for an audit. Both the Department of Labor, of which the Employee Benefit Security Administration is a part, and the Internal Revenue Service have voluntary compliance programs that may mitigate penalties that they have earned. Transparency can save them a lot of money and stress in these situations.

How We Can Help

Navigating the complexities of compliance with ERISA and other laws can be confusing and time-consuming. It is a lot of responsibility to sponsor a retirement plan and there can be serious consequences for not following ERISA rules. That is why it is important for you and your clients to work with an experienced retirement plan specialist who can help clarify the laws and shoulder some of the fiduciary responsibility for them.

If you are interested in having a qualified specialist partner with you and your clients to administer their employee retirement plan, call me at 480.494.8992 or email Together we can safeguard your clients’ plans against the new, higher ERISA non-compliance penalties.

About Kenny Phan

Kenny Phan is a Managing Partner at FinancialFocus Retirement Plan Services, a 3(16) fiduciary. He works as a pension specialist who partners with financial professionals to design and implement pension plans. His area of expertise is customized defined benefit, defined contribution, and 401(k) plans. Serving financial advisors and businesses in the greater Phoenix area, he is supported by FinancialFocus Retirement Plan Services. Together, they provide comprehensive plan design consultation, administration, document installation, compliance testing, as well as IRS and DOL reporting for qualified retirement plans.